Esry v. P.F. Chang's China Bistro Inc.

          OPINION AND ORDER

          J. LEON HOLMES UNITED STATES DISTRICT JUDGE

         This case is about the Little Rock P.F. Chang's payment practice s with respect to its servers. Jacqueline Esry and several opt-in plaintiffs worked as servers for P.F. Chang's in Little Rock, where they received a tipped rate of $2.63 an hour from P.F. Chang's as well as tips. The plaintiffs claim the restaurant wrongly paid them the tipped rate for time that they should have been paid minimum wage. They argue that P.F. Chang's required servers to spend substantial time on work that by itself does not generate tips, such as rolling silverware or cleaning tables after customers have finished dining. By doing so P.F. Chang's violated the Fair Labor Standards Act and the Arkansas Minimum Wage Act, they say, and they seek among other things backpay and liquidated damages under both statutes.^[1]

         P.F. Chang's contends that it did nothing wrong by paying Esry and other servers the tipped rate for all their hours worked. It points out that P.F. Chang's undisputed practice was to ensure the servers received at least the applicable minium wage if, in a given workweek, that server did not earn sufficient tips to cover the tip credit. The servers therefore undisputably effectively received at least the hourly minimum wage, in accordance with the FLSA. P.F. Chang's moves for summary judgment on Esry's claims. For the reasons that follow, the motion is denied.

         The FLSA^[2] requires employers to pay employees a minimum hourly wage, which is currently $7.25 per hour. 29 U.S.C. § 206(a)(1)(C). But an employer generally may take a “tip credit” by paying “tipped employees” a lower “tipped rate” instead of minimum wage - so long as the employees receive enough tips to make up the difference between the tipped rate and minimum wage. Id. § 203(m). A “tipped employee” is an “employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” Id. § 203(t).

         Recognizing that there are situations in which employees have more than one occupation under one employer-some occupations that are tipped and some that are not-the Department of Labor, tasked with enforcing the FLSA, promulgated a “dual jobs” regulation interpreting and implementing the tip credit. See 29 C.F.R. § 531.56(e). It provides the example of a maintenance man who also serves as a waiter. Id. Such an individual must receive the full minimum wage “for his hours of employment in his occupation of maintenance man, ” which does not generate tips, but may be paid as a “tipped employee” with respect to his employment as a waiter (so long as he customarily and regularly receives $30 a month in tips). Id. The regulation then explains:

Such a situation is distinguishable from that of a waitress who spends part of her time cleaning and setting tables, toasting bread, making coffee and occasionally washing dishes or glasses. It is likewise distinguishable from the counterman who also prepares his own short orders or who, as part of a group of countermen, takes a turn as a short order cook for the group. Such related duties in an occupation that is a tipped occupation need not by themselves be directed toward producing tips.

Id. The Court defers under Chevron to this regulation because the statute is ambiguous. See Fast v. Applebee's Intern., Inc., 638 F.3d 872, 878-79 (8th Cir. 2011) (stating that “we owe Chevron deference” to the regulation; as in the FLSA Congress “did not define ‘occupation' or address the possibility of an employee working more than one occupation for the same employer, ” nor did it define “engaged in an occupation”).^[3]

         The Department of Labor Wage and Hour Division has further interpreted the ambiguous regulation in a “Field Operations Handbook, ” which “provides WHD investigators and staff with interpretations of statutory provisions, procedures for conducting investigations, and generally administrative guidance.” See Index to Field Operations Handbook, Wage and Hour Division, United States Department of Labor, available at https://www.dol.gov/whd/FOH/index.htm (last visited March 11, 2019). According to the Department's website, the handbook “is not used as a device for establishing interpretive policy.” Id.

         Until February 15, 2019, the Handbook explained that an employer could take the tip credit “for time spent in duties related to the tipped occupation, even though such duties are not by themselves directed toward producing tips, provided such related duties are incidental to the regular duties of the tipped employees and are generally assigned to the tipped employee.” See Document #49-6 at 5. The Handbook did not define “related duties, ” but it gave the example of a server “who does preparatory or closing activities, rolls silverware and fills salt and pepper shakers while the restaurant is open, cleans and sets tables, makes coffee, and occasionally washes dishes or glasses.” Id. The Handbook then provided:

(3) However, where the facts indicate that tipped employees spend a substantial amount of time (i.e., in excess of 20 percent of the hours worked in the tipped occupation in the workweek) performing such related duties, no tip credit may be taken for the time spent in those duties. All related duties count toward the 20 percent tolerance.

(4) Likewise, an employer may not take a tip credit for the time that a tipped employee spends on work that is not related to the tipped occupation. For example, maintenance work (e.g., cleaning bathrooms and washing windows) are not related to the tipped occupation of a server; such jobs are non-tipped occupations. In this case, the employee is effectively employed in dual jobs.

Id.

         In Fast, the Eighth Circuit held that the Department's interpretation of the regulation as contained in the Handbook was “reasonable, persuasive, and entitled to deference.” Fast, 638 F.3d at 874 (citing Auer v. Robbins, 519 U.S. 542, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997)). The Fast court explained that deferring under Auer was appropriate, rather than using the lesser Skidmore deference, because the regulation gave specificity to the FLSA statutory scheme rather than merely parroting the statute and the regulation reflected the considerable experience and expertise of the Department of Labor. Id. at 878-79. Moreover, the regulation itself is ambiguous - further supporting Auer deference - because it does not address an employee performing related duties more than “part of the time” or more than “occasionally.” Id. at 879. Because Auer deference applied, the Eighth Circuit explained that “[t]he DOL's interpretation of § 531.56(e) is therefore ‘controlling unless plainly erroneous or inconsistent with the regulation.'” Id. (quoting Auer, 519 U.S. at 461, 117 S.Ct. 905).

         The Eighth Circuit deferred to the Handbook's “twenty-percent rule” or “80/20 rule.” According to the Fast court, based on the terms “part of [the] time” and “occasionally, ” the regulation itself “clearly places a temporal limit on the amount of related duties an employee can perform and still be considered to be engaged in the tip-producing occupation.” Id. The court also explained that a temporal limitation is consistent with other court decisions addressing similar issues. For example, a server who spends an entire shift as a “salad preparer” should not be included in a tip pool and paid the tipped rate. Id. at 880 (citing Myers v. Copper Cellar Corp., 192 F.3d 546, 549-50 (6th Cir. 1999)). Ultimately, the Fast court concluded that the Department's twenty-percent threshold as contained in the Handbook was “not inconsistent with § 531.56(e) and [was] a reasonable interpretation of the terms ‘part of [the] time' and ‘occasionally' used in that ...